Seeing people around you pouring money into a hot fund that only seems to get hotter can make sticking with any previously well-thought-out investing strategy difficult. As if your diversified portfolio only returned 10% last year when you could have earned 200% in the best fund. While each hot fund manager will seem brilliant at their peak, the phenomenon of star fund managers, including their powerful narratives, huge returns, and media adoration, is nothing new, and it’s not a story that tends to end well for investors.

Cathie Wood says her funds should quadruple over the next 5 years

Nov 24 2021

Innovation investor Cathie Wood said Wednesday her Ark funds should be way more valuable over the long haul, even as technology stocks have struggled recently amid rising rates.

Cathie Wood Is Testing ‘ARK on Steroids.’ She Wants to Bet Against Disruption’s Victims.

Cathie Wood’s investment firm, known for investing in companies that are shaking up their industries, is testing a portfolio that would let her bet against the corporate victims of that disruption.

Wood, a widely followed stock picker, founded and runs the asset-management firm ARK Invest. ARK currently offers six actively managed exchange-traded funds, but none have the capability to short stocks––borrowing shares and selling them later in a bet that prices would drop.

The new portfolio, currently being tested internally, would be able to not only own stocks, but also to short them, Wood told CNBC on Wednesday, She plans to focus her short selling on stocks in big benchmarks that are vulnerable to innovation-driven changes. The CEO characterized the new approach as “ARK on steroids.”

“We think the benchmarks are where the big risks are longer-term, because they are filling up with value traps––those companies that have done very well historically but are going to be disintermediated and disrupted by the massive amount of innovation that’s taking place,” she said.

ARK ETFs are known for focusing solely on innovators and industry disrupters like Tesla (ticker: TSLA) and Square (SQ). Some of the top-performing funds in 2020, the ARK ETFs soared wildly during the pandemic, garnering billions of dollars in assets from retail investors.

This year, though, the ARK funds have been struggling to repeat their spectacular performance. The flagship ARK Innovation ETF (ARKK), which gained 149% in 2020, is down 15% so far in 2021. The ARK Genomic Revolution ETF (ARKG) is down 31% this year after surging 178% in 2020. The S&P 500 index has risen 25% year to date.

Disruptive innovation––including DNA sequencing, robotics, energy storage, artificial intelligence, and blockchain––is currently priced between $10 trillion and $15 trillion in the global public market, says Wood. She believes that in 10 years, they’ll be worth $200 trillion.

But this year, investors have favored cheaper cyclical stocks that could benefit from the postpandemic recovery. ARK doubters believe that highflying names in ARK funds’ portfolios are too pricey, especially in an inflationary environment where growth companies’ future cash flows are considered less valuable today.

An increasing number of bears have been borrowing shares of ARK ETFs and selling them short, hoping to profit from a price drop. There is even an “anti-ARK” ETF––the Tuttle Capital Short Innovation ETF (SARK) launched two weeks ago––that tracks the inverse performance of the ARK Innovation ETF through swaps contracts.

The ability to short stocks could make ARK funds even more volatile than they are today. But Wood doesn’t think the current inflation––and its negative impact on her stock picks––will last. She has repeatedly said that the economy’s long-term trend is deflation rather than inflation, due to the downward price pressure coming from technology innovation.

Write to Evie Liu at evie.liu@barrons.com

Sell-off in Cathie Wood’s ARK Innovation fund reached 48% at low point Thursday

Thu, Jan 6 2022

Cathie Wood’s flagship fund ARK Innovation is caught in the epicenter of tech selling this week and some analysts see the stocks behind her strategies dropping even further before bottoming.

At its low of the day on Thursday, the innovation-focused exchanged-traded fund was down more than 48% from its February 2021 all-time intraday high. That is a drop worse than the one the fund saw in March of 2020 during the low of the pandemic market rout.

ARK Innovation closed down 0.6% at $85.58 per share on Thursday.

The selling this week, which had spurred a 9% drop in the ETF this week, is largely due to a spike in interest rates. Higher rates typically punishes growth pockets of the market that rely on low rates to borrow for investing in innovation. And their future earnings look less attractive when rates are on the rise.

The 10-year Treasury yield rose as high as 1.75% on Thursday, as rates have spiked to start the year with the Federal Reserve signaling a faster-than-expected policy tightening this year.

Of the 43 holdings in ARK Innovation, 36 are more than 40% off their 52-week highs. Tesla, Roku, Teladoc Health and Zoom Video are some of ARK Innovation’s top holdings.

This week’s underperformance spurred more than $280 million in fund flows to exit Wood’s flagship ETF since Monday, according to FactSet.

ARK Innovation’s tumultuous start to 2022 follows a rough year for ARK Innovation, which fell 24% in 2021.

The depreciation in Wood’s stocks from mid-February of 2021 has not changed Ark’s forecast, however. Wood said she is just getting her highest-conviction stocks at lower prices. This should result in a quadrupling over the next five years, she has said.

Wood has continued to buy the dip in her favorite stocks this week. She scooped up shares of DraftKings, Block and Roblox.

.... Tesla, Roku, Teladoc Health and Zoom Video ..... DraftKings, Block and Roblox ....

‘Big Short’ Investor Michael Burry, Other Hedge Funds Bet Against Cathie Wood’s ARK Innovation ETF

Aug. 17, 2021

A legion of retail traders helped make stock picker Cathie Wood’s flagship fund one of the hottest investments in the past year. Now, some professional investors are betting on its demise.

Several hedge funds took out fresh positions in the second quarter betting against Ms. Wood’s actively managed ARK Innovation exchange-traded fund, according to the most recent 13F filings with the Securities and Exchange Commission. The filings are a requirement for professional investors and are due 45 days after the end of the quarter.

Among the biggest naysayers was Michael Burry, the pathology-resident-turned-hedge-fund manager whose success in calling the housing market’s collapse was made famous by Christian Bale in the 2015 film “The Big Short.” As of the end of June, Mr. Burry’s Scion Asset Management held bearish put options worth nearly $31 million against 235,500 shares of the ARK Innovation ETF.

Several other funds that previously hadn’t bet against the ARK fund took on new positions against it in the second quarter, filings show. Laurion Capital Management held roughly $171 million worth of put options against 1.3 million shares of the ARK Innovation ETF. GoldenTree Asset Management, Moore Capital Management and Cormorant Asset Management also held sizable bearish positions on Ms. Wood’s fund.

Ms. Wood’s ARK Innovation ETF raced higher in 2020 and at the start of 2021, boosted by big bets on companies like electric car maker Tesla Inc., Roku Inc. and Square Inc. Ms. Wood’s strategy, which can be best summed up as identifying and betting on companies that she believes are at the forefront of “disruptive innovation,” seemed unbeatable.

Retail investors clung to her every word on Twitter and television, giving her nicknames like “Mamma Cathie,” “Aunt Cathie” and, in the case of South Korean fans, “Money Tree.”

But as shares of technology and other fast-growing companies lost some of their luster over the following months, so, too, did Ms. Wood’s innovation fund. It is down 6.9% this year, while the S&P 500 has risen 18%.

Ms. Wood doesn’t seem fazed yet. She laid out her investment thesis in a series of Twitter posts Tuesday -- then capped off her messages by throwing a jab at Mr. Burry’s latest call.

“To his credit, Michael Burry made a great call based on fundamentals and recognized the calamity brewing in the housing/mortgage market,” Ms. Wood said. “I do not believe that he understands the fundamentals that are creating explosive growth and investment opportunities in the innovation space.”

Cathie Wood says her innovation stocks are ‘way undervalued’ and recent fund losses temporary

Thu, Feb 17 2022

Cathie Wood of Ark Invest said Thursday the technology companies in her innovation-focused portfolio are drastically undervalued, and she believes that her fund’s recent sell-off is short-lived.

“We’ve had a significant decline,” Wood said Thursday on CNBC’s “Halftime Report.” “We do believe innovation is in the bargain basement territory. ... Our technology stocks are way undervalued relative to their potential. ... Give us five years, we’re running a deep value portfolio.”

Her flagship fund Ark Innovation ETF was caught in the epicenter of the tech-driven sell-off in 2022, down 26% year to date. Some of her big holdings, including Zoom, Teladoc Health and Roku, have tumbled as much as 70% this year on expectations of rising interest rates.

“Our biggest concern is that our investors turn what we believe are temporary losses into permanent losses,” Wood said.

Higher rates typically punish growth pockets of the market that rely on low rates to borrow for investing in innovation. And their future earnings look less attractive when rates are on the rise.

Wood said she doesn’t invest in any of those mature Big Tech companies like Microsoft. ARKK bets on companies in the forefront of disruptive technology in a variety of industries from DNA to automation, robotics and artificial intelligence. Her top holdings include Tesla, Exact Sciences, UiPath and Coinbase.

“Today we have investors doing the opposite of what they did in the late ’90s. They are running for the hills. It’s risk-off because of inflation and interest rates. And the hills are their benchmarks. They are running to the past,” Wood said.

“If we are right and the disruptive innovation that is evolving is going to disintermediate and disrupt the traditional world order, those benchmarks are where the risk is. Not our portfolios,” she added.

Despite the big underperformance, her ARKK has attracted more than $70 million in net inflows year to date, according to FactSet.

The innovation investor said she believes the inflationary drag on growth stocks will end ultimately and that deflationary forces will return.

“A lot of what’s going on is supply chain related,” Wood said. “I do think the deflationary forces building in the economy are pretty strong.”

Cathie Wood Got Oil Wrong. It Isn’t Going to $12. Here’s What She Missed.

March 7, 2022

ARK Invest’s Cathie Wood admitted she didn’t get her oil price forecast correct. There is a lesson in the admission about commodity investing.

Wood predicted back in 2020 that oil prices were headed to $12 a barrel. She believed oil demand had peaked and that, with the world shifting to electric vehicles, falling oil demand would equal lower prices.

The original prediction came in a tweet in mid-July 2020. Oil was trading at about $40 a barrel then and was three months removed from trading at negative $37.63 a barrel. Don’t forget, in the early stages of the pandemic a quirk of futures contracts had traders paying real money to offload expiring contracts.

During the pandemic, oil demand plunged to about 83 million barrels a day from a pre-pandemic high of more than 100 million barrels a day. So far, so good for Wood’s prediction.

The rest of the story is already known. Oil demand recovered. So did oil prices.

Still, demand hasn’t reached prior peaks. The International Energy Agency has demand at about 98 million barrels a day. Maybe there is a case to be made for Wood’s view of peak oil demand.

Instead of falling, oil prices have soared. Benchmark crude oil prices ended 2020 at almost $50 a barrel, ended 2021 at about $75 a barrel and traded above $130 a barrel on Monday.

The thing about commodity prices is they can have floors that roughly correspond to the cost of marginal production. Every commodity is different, though.

All the gold ever mined, for instance, is essentially still in in circulation. Annual gold mine output only adds a tiny fraction to the total amount of available gold. The cost of gold production has less influence on gold prices than, say, the cost of oil production.

Oil, however, gets used up as it is produced. And when prices fall producers produce less. They don’t like to lose money on every barrel they pump.

U.S. crude oil production peaked at 389 million barrels produced in November 2019, according to U.S. Energy Information Administration. Production fell to 274 million barrels for the month of February 2021. That’s down almost 30%. Production for the month of December 2021 came in at 359 million barrels, still about 8% below the peak.

Wood said the supply shock is why she got oil prices wrong. It isn’t clear if the supply shock Wood was referring to was related to the Russia-Ukraine shock that has sent oil prices up recently. It really shouldn’t be a shock that production fell as prices tanked.

ARK didn’t immediately respond to a request for comment requesting clarification.

Even if oil goes into secular decline, prices should, very roughly, track the marginal cost of production. Where will that price be? That’s hard to say. It won’t be $12 a barrel, though. No one makes much money at those prices.

Every oil producer’s cost structure is a little different. Shale producers have different costs of production than producers drilling in deep water as well as different cost figures from producers mining Canadian oil sands. Saudi Arabia probably has the lowest cost of production, but Saudi oil revenue also supports government budgets. That makes calculating a Saudi break even a difficult prospect.

Teladoc reports record net losses of $6.7M in Q1 as impairment charge costs billions

Apr 27, 2022

Telehealth giant Teladoc said Wednesday it will take a charge of $6.6 billion to write down the value of its acquisitions.

In its Q1 2022 earnings press release, the company reported losses in the first quarter of 2022 ballooned to $6.7 million, or a loss of $41.58 per share, compared to $199.6 million, or a loss of $1.31 per share, in the first quarter of 2021.

Teladoc completed its massive $18.5 billion acquisition of digital chronic condition management company Livongo in October 2020, creating a health technology giant just as the demand for virtual care began to soar during the COVID-19 pandemic.

The company also acquired InTouch Health in a $600 million deal in early 2020. InTouch Health provides enterprise telehealth solutions for hospitals and health systems.

The company's sizeable net loss included a non-cash goodwill impairment charge of $6.6 million, or a loss of $41.11 per share, a stock-based compensation expense of $60.4 million and amortization of acquired intangibles of $49.4 million. The company also reported stock-based compensation expense of $86.3 million, amortization of acquired intangibles of $43.7 million and a non-cash income tax charge of $87 million.

The company also revised its 2022 guidance down and now expects full-year revenue between $2.4 billion to $2.5 billion. At the end of 2021, Teladoc projected full-year revenue between $2.55 billion and $2.65 billion.

The company also expects a net loss of $7 to $6.9 billion in 2022 and adjusted EBITDA to fall between $240 to $265 million.

The revised 2022 outlook reflects dynamics the virtual care company is experiencing in the direct-to-consumer mental health and chronic condition markets, Jason Gorevic, chief executive officer of Teladoc Health said in a first-quarter earnings press release issued Wednesday afternoon.

In the direct-to-consumer mental health market, higher advertising costs in some channels are generating a lower-than-expected yield on Teladoc's marketing spend, he said.

Teladoc's shares suffered considerably in 2021, plummeting 54% compared with the S&P 500’s 27% gain. Since the start of 2022, Teladoc’s shares have fallen more than 40%.

Teladoc's first-quarter revenue grew 25% to $565.4 million, from $453.7 million in the first quarter of 2021. The company missed analysts' revenue projections of $571.5 million in the first quarter.

The company's access fees revenue grew 29% to $491.3 million and visit fee revenue grew 12% to $67.9 million. U.S. revenues grew 24% to $491.2 million and international revenues grew 27% to $74.2 million.

Adjusted EBITDA during the quarter decreased 4% to $54.5 million, compared to $56.6 million in the first quarter of 2021.

Unity Software's stock plunges 38% on weak revenue guidance

Tue, May 10, 2022

Unity Software Inc.'s. stock plummeted 38% in extended trading Tuesday after the software company reported fiscal first-quarter results that were largely in line with Wall Street analysts' forecasts, but issued poor second-quarter and fiscal year revenue guidance.

Unity reported a net loss of $177.6 million, or 60 cents a share, compared with a net loss of $107.5 million, or 39 cents a share, in the year-ago quarter. Adjusted earnings were a loss of 8 cents a share. Revenue increased 36% to $320.1 million from $234.8 million a year ago.

Analysts surveyed by FactSet had expected on average a net loss of 8 cents a share on revenue of $321 million.

However, Unity said it expected Q2 revenue of between $290 million and $295 million, while analysts polled by FactSet anticipate $360 million on average. For the fiscal year, Unity is projecting $1.35 billion to $1.43 billion; analysts polled by FactSet predict $1.5 billion. Shares of Unity have sunk 66% this year, while the broader S&P 500 index SPX, +0.25% has declined 16%.